Coupon blending of a swap portfolio

ABSTRACT

Systems and methods for blending a plurality of swaps may include determining a fixed rate for use in blending a plurality of swaps, each of the plurality of swaps having matching economics and a different associated fixed rate. A computing device may determine a first remnant swap and a second remnant swap to blend the plurality of swaps using the determined fixed rates. This may reduce the gross notional and/or the total clearing line items associated with the original swaps. In some cases, the computing device may determine one single swap for blending the plurality of swaps.

REFERENCE TO RELATED APPLICATIONS

This application is a continuation under 37 C.F.R. § 1.53(b) of U.S.patent application Ser. No. 17/737,157 filed May 5, 2022 now U.S. Pat.No. ______, which is a continuation under 37 C.F.R. § 1.53(b) of U.S.patent application Ser. No. 17/213,392 filed Mar. 26, 2021 now U.S. Pat.No. 11,379,918, which is a continuation under 37 C.F.R. § 1.53(b) ofU.S. patent application Ser. No. 16/394,529 filed Apr. 25, 2019 now U.S.Pat. No. 11,004,148, which is a continuation under 37 C.F.R. § 1.53(b)of U.S. patent application Ser. No. 14/338,080 filed Jul. 22, 2014 nowU.S. Pat. No. 10,319,032, which claims the benefit of the filing dateunder 35 U.S.C. § 119(e) U.S. Provisional Patent Application Ser. No.61/991,188, filed May 9, 2014, the entire disclosures of which arehereby incorporated by reference.

BACKGROUND

Over-the-counter (OTC) products include financial instruments that arebought, sold, traded, exchanged, and/or swapped between counterparties.Many OTC derivatives exist to fill a wide range of needs forcounterparties, including limiting or mitigating exposure to risksand/or maximizing cash flow. After an exchange of an OTC product,counterparties may expend resources managing the product for theduration of its life. Management may be complicated based on the numberof exchanges and/or the specific terms of the contract.

An interest rate swap (IRS) is an example of a type of OTC product wherethe parties agree to exchange streams of future interest payments basedon a specified principal or notional amount. Each stream may be referredto as a leg. Swaps are often used to hedge certain risks, for instance,interest rate risk. They can also be used for speculative purposes.

An example of a swap includes a plain fixed-to-floating, or “vanilla,”interest rate swap. The vanilla swap includes an exchange of intereststreams where one stream is based on a floating rate and the otherinterest stream is based on a fixed rate. In a vanilla swap, one partymakes periodic interest payments to the other based on a fixed interestrate. In return for the stream of payments based on the fixed rate, theparty may receive periodic interest payments based on a variable rate.The payments are calculated over the notional amount.

The variable rate may be linked to a periodically known or agreed uponrate for the term of the swap such as the London Interbank Offered Rate(LIBOR). This rate is called variable, because it is reset at thebeginning of each interest calculation period to the then currentreference rate, such as LIBOR published rate. The parties to an IRS swapgenerally utilize these exchanges to limit, or manage, exposure tofluctuations in interest rates, or to obtain lower interest rates thanwould otherwise be unobtainable.

Usually, at least one of the legs to a swap has a variable rate. Thevariable rate may be based on any agreed upon factors such as areference rate, the total return of a swap, an economic statistic, etc.Other examples of swaps include total return swaps, and Equity Swaps.

The expiration or maturity of the future streams of payments may occurwell into the future. Each party may have a book of existing and newIRSs having a variety of maturity dates. The parties may expendsubstantial resources tracking and managing their book of IRSs and otherOTC products. In addition, for each IRS, the party maintains an elementof risk that one of its counterparties will default on a payment.

Currently, financial institutions such as banks trade interest ratepayments and/or interest rate swaps over the counter. Steams of futurepayments must be valued to determine a current market price. The marketvalue of a swap is the sum of the difference between the present valueof the future fixed cash flows and the floating rate and the price ofthe swap is determined based on the fixed rate. Because the fixed rateof a particular swap is determined based on the available fixed rate atthe time the price is struck, the fixed rates associated with twodifferent swaps will rarely be the same. As such, each swap that isstruck causes a separate line item to be booked until an opposite swapwith the same fixed rate is struck. As such, it would be desirable toprovide a way to blend coupons for reducing notional amounts and/or lineitems (e.g., swaps) on a financial organization's books.

SUMMARY OF THE INVENTION

Systems and methods are described for reducing notional amount and/orclearing line items associated with swaps that are on an organization'sbooks. In some cases, a method for reducing a notional amount and/orclearing line items associated with a portfolio of swaps may includedetermining at least a first fixed rate for use in blending a pluralityof swaps. Each of the swaps may have matching economics and a differentassociated fixed rate. The method may further include determining, byone or more computing devices, a first remnant swap using the firstfixed rate and determining a second remnant swap using a second fixedrate, wherein the second fixed rate is different than the first fixedrate.

In some cases, a non-transitory computer-readable medium may containcomputer-executable instructions, that when executed by a processor,cause one or more computing devices to determine a first blend rate foruse in blending a plurality of swaps. Each of the plurality of swaps mayhave matching economics and a different associated fixed rate. Theinstructions may further cause the one or more computing devices todetermine a first remnant swap using the first blend rate and todetermine a second remnant swap using the second blend rate to blend theplurality of swaps.

In some cases, a system for reducing notional amount and/or clearingline items associated with swaps that are on an organization's books mayinclude a network and one or more computing devices. The computingdevices may include a processor and one or more non-transitory memorydevices storing instructions that, when executed by the processor, causethe one or more computing devices to determine a first blend rate and asecond blend rate for use in blending a plurality of swaps. Each of theplurality of swaps may have matching economics and a differentassociated fixed rate. The instructions may further cause the one ormore computing devices to determine a first remnant swap using the firstblend rate and determine a second remnant swap using the second blendrate to blend the plurality of swaps together with first remnant swap.The one or more computing devices may then communicate, via the network,information corresponding to the first remnant swap and the secondremnant swap to an institution associated with the plurality of swaps.

In some cases, a method for compressing a portfolio of swaps may beimplemented by a computer device and include determining a fixed ratefor use in blending a plurality of swaps, where each of the plurality ofswaps may have matching economics and a different associated fixed rate.A computing device may further determine a blended swap for blending theplurality of swaps using the fixed rate, wherein a gross notional of theblended swap could be less than the gross notional amount for theplurality of swaps and/or reducing the number of clearing line items.

The details of these and other embodiments of the present invention areset forth in the accompanying drawings and the description below. Otherfeatures and advantages of the invention will be apparent from thedescription and drawings.

BRIEF DESCRIPTION OF THE DRAWINGS

The present invention may take physical form in certain parts and steps,embodiments of which will be described in detail in the followingdescription and illustrated in the accompanying drawings that form apart hereof, wherein:

FIG. 1 shows an illustrative trading network environment forimplementing trading systems and methods according to at least someembodiments.

FIG. 2 shows a portion of an illustrative system for blending couponsassociated with a plurality of swaps in accordance with an aspect of theinvention.

FIG. 3 illustrates a data table illustrative of a method for blendingcoupons of a swap portfolio in accordance with an aspect the invention.

FIG. 4 shows an illustrative flow diagram for blending couponsassociated with a plurality of swaps in accordance with an aspect theinvention.

FIGS. 5A-5B show illustrative charts showing a comparison of a new grossnotional amount for the blended portfolio compared to the notionalamount of a blended swap.

FIG. 6A shows an illustrative chart comparing a notional amount of afirst blended swap to a rate associated with the second blended swap.

FIG. 6B shows an illustrative chart comparing a gross amount of ablended portfolio to a rate associated with the second blended swap.

FIG. 7 shows an illustrative flow diagram for blending couponsassociated with a plurality of swaps in accordance with an aspect theinvention.

DETAILED DESCRIPTION OF THE DRAWINGS AND PRESENTLY PREFERRED EMBODIMENTS

In some cases, clients may desire to enter into one or more swaps (e.g.,interest rate swaps) for hedging a position in a market. For example, anorganization may have multiple positions in fixed rate mortgages, whilehaving less exposure to products associated with a floating rate. Atsuch times, the organization may desire to enter into one or more swapswith another party to hedge risks that may be associated with having amajority of fixed rate products. For example, when interest rates fall,the organization may make money by having a majority of fixed rateproducts in a portfolio. However, when the market goes up (e.g.,interest rates rise), the organization may lose the opportunity toprofit from the higher interest rates. By hedging these risks, theparties to the interest rate swaps may have a goal to allow their assetsand/or liabilities to at least remain near the starting levels and/orminimize any losses. Generally, an available fixed rate dictates theprice of a swap, where the fixed rate available at the market changesover time. For example, a dealer may quote a swap at a first rate at atime 0. A short time later (e.g., about 10 minutes, about 30 minutes,etc.), the same dealer may provide a quote for a similar swap, buthaving a second rate that is different than the first rate. Once theswaps are entered, the fixed rate will remain fixed for the lifetime ofthe swap. Over time, a swap purchaser (e.g., an individual, anorganization, a business, etc.) may develop a portfolio of swaps,including the swaps of at least one payer swap (e.g., providing thefixed rate leg of the swap) and/or at least one receiver swap (e.g.,providing the floating rate leg of the swap). Few, if any, swaps mayhave the same interest rate resulting in a large number of swaps toremain open on the organization's books.

An organization or an individual may enter into multiple swaps during agiven time frame (e.g., a day, a week, a month, etc.) and, as a result,may have multiple line items in their books in relation to these swaps.For example, a customer may have a first swap for paying a set amount(e.g., $100 million) and a second swap for receiving the same set amount(e.g., $100 million). Although these swaps are associated with the samenotional amount, the interest rates are likely to be different. As such,these swaps will not net out. Rather, the $200 million remains open onthe organization's books. These swaps may further be subject toregulatory requirements, such as governmental requirements,international banking requirements (e.g., BASEL 3 requirements), and/orthe like. These regulatory requirements may, in turn, subject theorganization to capital charges (e.g., a specified cash reserve) toensure that a financial organization has enough cash to cover theirliabilities regarding their swap portfolio.

In an illustrative example, a financial institution may have a houseaccount having a number of swaps open in the account. Under theregulatory requirements, the financial institution is required to setaside capital (e.g., a margin account) to cover the open swaps. Thiscash requirement may be dependent upon, at least in part, on the grossnotional amount and/or the total clearing line items associated with theswap portfolio. As such, the financial organization can reduce itscapital requirements by reducing the number of line items on theirbooks, and/or by reducing the gross notional of the swap portfolio.

In some cases, multiple line items having the same interest rate may becollapsed together (e.g., canceled). For example, a pay swap having anassociated first notional amount of may be offset by a second notionalamount associated with a receive swap when the pay and receive swapshave the same interest rate. However this is rare. For example, a swapparticipant may use an investment strategy for achieving the same fixedrate for two or more different swaps. In such cases, the customer mayspecify a desired rate for a swap when contacting a dealer. While thedealer may be able to find a counter-party willing enter into a swap atthat rate, the swap may incur a fee to equalize the economics of theswap. For example, at the desired fixed rate, the economics of the swapmay favor the paying party or the receiving party. By equalizing thesedifferences, the swap may then be structured to allow the total value ofthe fixed rate leg to be equal to the floating rate leg of the swap. Ingeneral, when the interest rates are determined for the swaps, theprecision may be specified by one or more parties to the swap. In somecases, the precision of the rates may be limited to a defined precisioncommon to the market, such as about 2 decimal places, about 5 decimalplaces, up to 7 decimal places. In other cases, the rate precision maybe specified to be a precision greater than 7 decimal places, such as 11decimal places, up to 16 decimal places, etc.)

In some cases, a clearing house may monitor a portfolio of swaps todetermine whether any of the total notional value of the swap portfoliomay be canceled or otherwise offset. For example, the clearing housemay, on a periodic (e.g., daily) basis, process an algorithm todetermine a net value of a client's swap portfolio and send a message tothe client to terminate a line item, or offset at least a portion of thegross notional value when two or more line items may be collapsed.

In the past, the over-the-counter swap market was largely a bespokemarket, where a customer desiring to enter into a swap would contact,such as by telephone, one or more dealers to determine which dealerwould offer the best price to enter into the deal. In such cases, theswap may be entered on a common platform, but the trade execution wascompleted by phone. Because swaps may not be fully transparent,governmental regulations have required that swaps be executed via a SwapExecution Facility (SEF). A SEF is a regulated platform for swap tradingthat provides pre-trade information, such as bids, offers, and the like,and/or an execution mechanism to facilitate execution of swaptransactions among eligible participants. Over time more and more typesof swaps may be executed via a SEF, such as interest rate swaps. Becausethe SEF may operate using a more automated swap market mechanism, thelikelihood that a customer may enter into different swaps, where eachshare a same interest rate will become increasingly rare. A SEF mayexecute many swaps with multiple coupons at a centralized location. Insome cases, different swaps may share the same, or similar, economics toanother swap. However, the coupons are likely to differ due to the swapsexecuting at different times. As such a client may quickly build a book(e.g., swap portfolio) with many swap line items, which, in turn, wouldrequire the client to incur a large capital obligation corresponding tothe gross notional and/or the total clearing line items of the book ofswaps.

Exemplary Operating Environment

Aspects of at least some embodiments can be implemented with computersystems and computer networks that allow users to communicate tradinginformation. An exemplary trading network environment for implementingtrading systems and methods according to at least some embodiments isshown in FIG. 1 . The implemented trading systems and methods caninclude systems and methods, such as are described herein, thatfacilitate trading and other activities associated with financialproducts based on currency pairs.

Computer system 100 can be operated by a financial product exchange andconfigured to perform operations of the exchange for, e.g., trading andotherwise processing various financial products. Financial products ofthe exchange may include, without limitation, futures contracts, optionson futures contracts (“futures contract options”), and other types ofderivative contracts. Financial products traded or otherwise processedby the exchange may also include over-the-counter (OTC) products such asOTC forwards, OTC options, etc.

Computer system 100 receives orders for financial products, matchesorders to execute trades, transmits market data related to orders andtrades to users, and performs other operations associated with afinancial product exchange. Exchange computer system 100 may beimplemented with one or more mainframe, desktop or other computers. Inone embodiment, a computer device uses one or more 64-bit processors. Auser database 102 includes information identifying traders and otherusers of exchange computer system 100. Data may include user names andpasswords. An account data module 104 may process account informationthat may be used during trades. A match engine module 106 is included tomatch prices and other parameters of bid and offer orders. Match enginemodule 106 may be implemented with software that executes one or morealgorithms for matching bids and offers.

A trade database 108 may be included to store information identifyingtrades and descriptions of trades. In particular, a trade database maystore information identifying the time that a trade took place and thecontract price. An order book module 110 may be included to store pricesand other data for bid and offer orders, and/or to compute (or otherwisedetermine) current bid and offer prices. A market data module 112 may beincluded to collect market data, e.g., data regarding current bids andoffers for futures contracts, futures contract options and otherderivative products. Module 112 may also prepare the collected marketdata for transmission to users. A risk management module 134 may beincluded to compute and determine a user's risk utilization in relationto the user's defined risk thresholds. An order processor module 136 maybe included to decompose delta based and bulk order types for furtherprocessing by order book module 110 and match engine module 106.

A clearinghouse module 140 may be included as part of exchange computersystem 100 and configured to carry out clearinghouse operations. Module140 may receive data from and/or transmit data to trade database 108and/or other modules of computer system 100 regarding trades of futurescontracts, futures contracts options, OTC options and contracts, andother financial products. Clearinghouse module 140 may facilitate thefinancial product exchange acting as one of the parties to every tradedcontract or other product. For example, computer system 100 may match anoffer by party A to sell a financial product with a bid by party B topurchase a like financial product. Module 140 may then create afinancial product between party A and the exchange and an offsettingsecond financial product between the exchange and party B. As anotherexample, module 140 may maintain margin data with regard to clearingmembers and/or trading customers. As part of such margin-relatedoperations, module 140 may store and maintain data regarding the valuesof various contracts and other instruments, determine mark-to-market andfinal settlement amounts, confirm receipt and/or payment of amounts duefrom margin accounts, confirm satisfaction of final settlementobligations (physical or cash), etc. As discussed in further detailbelow, module 140 may determine values for performance bonds associatedwith trading in products based on various types of currency pairs.

Each of modules 102 through 140 could be separate software componentsexecuting within a single computer, separate hardware components (e.g.,dedicated hardware devices) in a single computer, separate computers ina networked computer system, or any combination thereof (e.g., differentcomputers in a networked system may execute software modulescorresponding more than one of modules 102-140).

Computer device 114 is shown directly connected to exchange computersystem 100. Exchange computer system 100 and computer device 114 may beconnected via a T1 line, a common local area network (LAN) or othermechanism for connecting computer devices. Computer device 114 is shownconnected to a radio 132. The user of radio 132 may be a trader orexchange employee. The radio user may transmit orders or otherinformation to a user of computer device 114. The user of computerdevice 114 may then transmit the trade or other information to exchangecomputer system 100.

Computer devices 116 and 118 are coupled to a LAN 124. LAN 124 mayimplement one or more of the well-known LAN topologies and may use avariety of different protocols, such as Ethernet. Computers 116 and 118may communicate with each other and other computers and devicesconnected to LAN 124. Computers and other devices may be connected toLAN 124 via twisted pair wires, coaxial cable, fiber optics, radio linksor other media.

A wireless personal digital assistant device (PDA) 122 may communicatewith LAN 124 or the Internet 126 via radio waves. PDA 122 may alsocommunicate with exchange computer system 100 via a conventionalwireless hub 128. As used herein, a PDA includes mobile telephones andother wireless devices that communicate with a network via radio waves.

FIG. 1 also shows LAN 124 connected to the Internet 126. LAN 124 mayinclude a router to connect LAN 124 to the Internet 126. Computer device120 is shown connected directly to the Internet 126. The connection maybe via a modem, DSL line, satellite dish or any other device forconnecting a computer device to the Internet. Computers 116, 118 and 120may communicate with each other via the Internet 126 and/or LAN 124.

One or more market makers 130 may maintain a market by providingconstant bid and offer prices for a derivative or security to exchangecomputer system 100. Exchange computer system 100 may also include tradeengine 138. Trade engine 138 may, e.g., receive incoming communicationsfrom various channel partners and route those communications to one ormore other modules of exchange computer system 100.

One skilled in the art will appreciate that numerous additionalcomputers and systems may be coupled to exchange computer system 100.Such computers and systems may include, without limitation, additionalclearing systems (e.g., computer systems of clearing member firms),regulatory systems and fee systems.

The operations of computer devices and systems shown in FIG. 1 may becontrolled by computer-executable instructions stored on non-transitorycomputer-readable media. For example, computer device 116 may includecomputer-executable instructions for receiving market data from exchangecomputer system 100 and displaying that information to a user. Asanother example, clearinghouse module 140 and/or other modules ofexchange computer system 100 may include computer-executableinstructions for performing operations associated with determiningperformance bond contributions associated with holdings in products thatare based on various types of currency pairs.

Of course, numerous additional servers, computers, handheld devices,personal digital assistants, telephones and other devices may also beconnected to exchange computer system 100. Moreover, one skilled in theart will appreciate that the topology shown in FIG. 1 is merely anexample and that the components shown in FIG. 1 may be connected bynumerous alternative topologies.

EXEMPLARY EMBODIMENTS

In some cases, the clearinghouse module 140 may be configured to monitorand/or otherwise manage a capital obligation associated with a pluralityof swaps, such as a swap portfolio. In at least some embodiments, theexchange computer system 100 (or “system 100”) receives, stores,generates and/or otherwise and processes data. In accordance withvarious aspects of the invention, a clearinghouse (e.g., theclearinghouse module 140) may act as a guarantor of the agreement forthe derivative. As discussed above, a derivative (e.g., an over thecounter swap) may be cleared and guaranteed by the clearinghouse. Thismay promise more interesting capital efficiencies to allow institutionsto reduce a capital charge associated with a plurality of swaps, such asby reducing a gross notional and/or reducing line items associated withthe plurality of swaps.

FIG. 2 shows a portion of an illustrative system 200 for blendingcoupons associated with a plurality of swaps in accordance with anaspect of the invention. In some cases, the illustrative system 200 mayinclude a financial institution computing system 210 communicativelycoupled to a clearinghouse computer system 240 via a network 205 (e.g.,a wide area network (WAN), the LAN 124, the Internet 126, etc.). Thefinancial institution computing system 210 may include a data repository212, one or more computing devices 214, and, in some cases, at least oneuser interface 216. In some cases, the data repository 212 may storeinformation about one or more swap portfolios 222, where the swapportfolios may include information about two or more different swaps(e.g., swap 1, swap 2, swap n, etc.). For example, the swap informationmay include a fixed rate value, a floating rate value, a notional value,and/or a cash value for each of the plurality of different swaps of theswap portfolios 222. In some cases, the swap portfolios 222 may beassociated with the financial institution, and/or one or more differentcustomers of the financial institution. For example, a financial entityand/or a customer of the financial entity may desire to enter into oneor more different swaps to hedge financial risk due to a plurality offixed rate holdings and/or a plurality of floating rate holdings. Insome cases, a computing device 215 and/or the user interface 216 may beused to facilitate user access to the one or more swap portfolios 222.For example, a user may log into the financial institution computingsystem 210 via one or more user interface screens accessible via theuser interface 216. In some cases, the user interface 216 is at ageographical location local to the financial institution computer system210 and/or at a geographical location of the user.

In some cases, the clearinghouse computer system 240 may include one ormore of a data repository 242, a computer device 244 and/or a userinterface 246. The clearinghouse computer system 240 may becommunicatively coupled to at least one financial institution computersystem, such as the financial institution computing system 210 via thenetwork 205. In some cases, the clearinghouse computer system 240 may beconfigured to obtain information about one or more of the swapportfolios 222, process the information to blend coupons associated withthe different swaps of the swap portfolios 222 and communicateinformation about the blended swaps to the financial institutioncomputing system 210 to reduce one or more line items associated withthe swap portfolios 222 and/or to reduce a gross notional valueassociated with the swap portfolios 222 to reduce a total capital chargeincurred by the financial institution in relation to the swap portfolios222.

FIG. 3 illustrates data tables 300, 340, 360, and 380 illustrative of amethod for blending coupons of a swap portfolio by the clearinghousecomputing system 240 in accordance with aspects the invention. The datatable 300 includes information about a plurality of swaps 310 (e.g., theswap portfolios 222) held at the financial institution, a fixed rate311, and a notional value 321 associated with each of the swaps 310. Aweighted notional 325 may be calculated as a product of the fixed rate311 and the notional value 321 for each of the swaps 310. The data table300 may also include fixed coupon payments (e.g., cash flows 330)associated with each of the swaps 310, which may include one or more payswaps and one or more receive swaps. The computing device 244 may beconfigured to compute an average rate 320 associated with the pluralityof swaps 310. While the average may be calculated with high precision(e.g., greater than 5 decimal point precision), the market may onlysupport a lesser degree of precision. As such the computing device 244may round the average rate 320 to a rounded rate 322 having a precisioncommon to the financial industry (e.g., about five decimal pointprecision).

In blending the coupons of the swap portfolio 222, the computing device244 may then be configured to calculate a sum 326 of the notionals 321and a sum 327 of the weighted notionals. A weighted average rate 323 maybe calculated by dividing the sum 327 of the weighted notionals by thesum 326 of the notionals. In some cases, the weighted average rate 323may have a high precision (e.g., greater than five decimal places, abouteleven decimal places, etc.) such that the cash flows 335 associatedwith the remnant swap(s) are equal to the total cash flows 336 for theplurality of swaps 310 in the portfolio 222.

To properly blend the swaps 310, the cash flow of the blended swap(s)must be equal to the total cash flows 336 of the swaps 310. In manycases, the resulting precision required for the coupon matching is muchgreater than (e.g., greater than about five decimal places, about elevendecimal places, and the like) the precision commonly supported in thefinancial industry. As such, different methods may be used to blend thecoupons, combine line items associated with swaps, and reduce a grossnotional value associated with the plurality of swaps included in a swapportfolio 222.

In some cases, the coupons of the swaps 310 may be blended into twodifferent swaps. In some cases, the first remnant swap may be determinedas shown in table 340. In a first step, a rate may be determined (e.g.,a maximum fixed rate 355 associated with the portfolio, a minimum fixedrate 350 associated with the portfolio, the rounded average rate of theswaps 310, a user selected rate, a current market rate, a past marketrate, etc.) for the first remnant swap and a second rate (e.g. a minimumfixed rate 350 associated with the portfolio, a maximum fixed rate 355associated with the portfolio, a rounded average rate, a user selectedrate, a current market rate, a past market rate, etc.) may be selectedfor the second remnant swap. For example, the second rate may be greaterthan or equal to 0, but less than the rate associated with the firstremnant swap. The notional value of the first remnant swap may bedetermined using the sum the notionals of the plurality of swaps, a sumof weighted notionals of the plurality of swaps, the rate associatedwith the first remnant swap and the rate associated with the secondremnant swap. Further, the notional of the second remnant swap may bedetermined based on the notional of the first remnant swap and the sumof the notional values of the portfolio of swaps 310. To properly blendthe swaps 310, the cash flows 345 of the first and second remnant swapsmust match the total cash flows associated with the swaps 310.

In an illustrative example, the notional value 362 of the second remnantswap may be computed by subtracting the notional 342 of the firstremnant swap from the total net notional, such as the sum 326 of thenotional amounts of the swaps 310. The rate 361 of the second remnantswap may be set to zero, or another desired value. When the rate of thesecond remnant swap is set to zero, the first remnant swap may fullyaccount for the fixed rate components of the original swaps 310 and thesecond remnant swap may account for the floating rate components of theoriginal swaps. Otherwise, both the first remnant swap and the secondremnant swap each account for a mixture of the fixed rate components andthe floating rate components of the original portfolio.

As can be seen, the plurality of swaps 310 has been reduced to two lineitems, the first remnant swap, and the second remnant swap. Further, thegross notional amount associated with the plurality of swaps 310 hasbeen reduced from the original gross notional to a reduced grossnotional amount 370.

Table 380 is illustrative of a single swap solution for blending couponsassociated with the plurality of swaps 310. In this example, the singleswap may be created by matching the cash flows 345 of the blendedportfolio with the cash flows of the original portfolio 336. The singleblended swap may be created having a rate equal to the weighted averagerate 323 associated with the original portfolio and the notional valueof the single swap may correspond to the sum 326 of the notional valuesof the original portfolio. In some cases, the rate of the single swapmay be within a range of values available in a financial market. Inother cases, the rate of the single swap may be outside of the range ofvalues available in the financial market.

FIG. 4 shows an illustrative flow diagram 400 for blending couponsassociated with a plurality of swaps in accordance with an aspect theinvention. The flow diagram 400 of FIG. 4 may allow a computing device244 to blend two or more different swaps. As discussed above, couponblending is a form of compression that may be used to reduce notionalamounts and/or line items for trades that are economically equivalentexcept for their fixed rates. In some cases, a goal for marketparticipants may be to reduce capital requirements associated with aportfolio of swaps by reducing gross notional amounts and/or the numberof line items associated with the swaps. Coupon blending may beaccomplished for both pay swaps and receive swaps. One or more fixedrates used in blending the portfolio of swaps may be configured to liewithin a range of rates associated with the different swaps included inthe blended portfolio of swaps. Further, the compressed portfolio may bedesigned to reduce the number of line items associated with the swapsand/or reduce the gross notional corresponding to the portfolio ofswaps, such as by compressing the plurality of swaps to a single swap ora pair of swaps.

In some cases, the precision of the one or more fixed rates used forcompressing the portfolio of swaps may be chosen to be within aprecision range commonly used in the marketplace. For example, a fixedrate may have a precision of 5 decimal places, or fewer. In other cases,the precision may be set at a number acceptable to the financialinstitution associated with the portfolio of swaps. For example, afinancial institution may desire a rate having a precision greater than5 decimal places (e.g., 7 decimal places, 10 decimal places, etc.)

In some cases, the blended coupon and the associated blended trade maybe represented by two netting options. In some cases, a number of swapsmay automatically be blended. In some cases, a user may select one ormore swaps to be included and/or one or more swaps to be excluded frominclusion in the blended trade. In some cases, when an account (e.g., aportfolio of swaps) is specified for blending, a standard netting optionmay be applied to the account before the calculating the coupon blendingmethod of FIG. 4 . For example, for swaps having a same interest rate,the notionals of these swaps may net out automatically.

At 410, a first fixed coupon rate 341 may be determined for a firstremnant swap and a second fixed coupon rate 361 may be determined for asecond remnant swap. The first fixed rate 341 may be greater than thesecond fixed rate 361. In some cases, a simple average rate 320 of ratesassociated with the plurality of swaps 310 may be calculated. Thissimple average rate 320 may be used as either the first fixed rate 341or the second fixed rate 361. In some cases, the first fixed rate 341and/or the second fixed rate 361 may be chosen to have a decimalprecision acceptable in the marketplace. In some cases, the first fixedrate and/or the second fixed rate 361 may be rounded according to aspecified decimal precision (e.g., up to 5 decimal places, etc.). Insome cases, a rate associated with the plurality of swaps may be used asthe first fixed rate 341 and/or the second fixed rate 361. For example,the first fixed rate may be set to the minimum fixed rate 350, themaximum rate 355 and the like. In some cases, the second fixed rate 361may be set to the minimum fixed rate 350, the maximum rate 355 and thelike, where the first fixed rate 341 may be greater than the secondfixed rate 361. In an illustrative example, the first fixed rate 341 maybe set to the maximum fixed rate 355 associated with the portfolio andthe second fixed rate 361 may be set to a value less than the maximumfixed rate (e.g., the minimum fixed rate, 0, etc.). In another example,the first fixed rate 341 may be set to a value chosen by a user (e.g., amultiple of a rate associated with the portfolio, an available marketrate, etc.) and the second rate 361 may be set to a value less than thefirst fixed rate, such as the minimum fixed rate 350 or another suitablevalue.

At 420, the weighted average rate 323 and the total weighted notionalamount 327 may be calculated by the computing device 244. In some cases,the total weighted notional amount 327 may be used when determining thenotional amounts associated with the first remnant swap (e.g., thecalculated notional amount 342).

At 430, the computing device 244 may create the first calculated swapusing the first fixed rate 341 and the newly calculated notional amount342. In some cases, the computing device 244 may calculate a differencebetween the sum 326 of the portfolio notionals and the notional amount342 of the first calculated swap. This difference may be used as anotional amount 362 of the second calculated swap.

At 440, the computing device may create the second calculated swap usingthe second fixed coupon rate 361 and the notional amount 362. The cashflows associated with the first remnant swap and the cash flowsassociated with the second remnant swap may fully account for the cashflows of the swaps in the original portfolio. When the second fixed rateis chosen to be 0, the cash flows associated with the first remnant swap336 fully account for the cash flows 335 of the fixed leg of theoriginal portfolio. As such, the second fixed rate 361 may be set to 0or another value less than the first fixed rate 341. As can be seen, theline items of the plurality of swaps 310 of the portfolio may becompressed into two calculated swaps, where all other economic detailsof the calculated swaps will match the trades in the original portfolio.

The second fixed coupon rate may be different than the first fixedcoupon rate. For example, the second rate may be less than the firstrate. In an illustrative example, the first fixed rate may be determinedto be the maximum fixed rate 355 associated with the swaps 310 to becompressed and the second fixed rate may be determined to be a rate lessthan the maximum fixed rate 355. In some cases, the second fixed ratemay be set to zero, the minimum fixed rate 350 associated with theswaps, an average value of the fixed rates associated with the swaps, oranother value less than the first fixed rate. When a rate available inthe market is used, such as the maximum rate 355, the minimum rate 350,and the like, no need may exist for rounding the fixed rate value. Insome cases, a rate may be selected for use as either the first fixedrate or the second fixed rate such as by using a mathematical equation(e.g., multiplying a rate associated with the portfolio by a multiplier,determining an average value, etc.), determining a desirable ratecurrently available in the market, or selecting a particular value. Inother cases, the rate of the first remnant swap and/or the secondremnant swap may be determined by determining a rate corresponding to acurrently quoted swap having matching economics to the plurality ofswaps and/or receiving a user entered rate.

In some cases, the computing device 244 may compute a weighted notionalvalue 325 for each of the plurality of swaps 310 by multiplying thenotional amount and the rate associated with the individual swaps. Thecomputing device 244 may then determine the sum 327 of the weightednotional values 325. When the second fixed rate is non-zero, thecomputing device 244 may determine the notional value associated withthe first remnant swap using equation (3), as discussed below. When thesecond fixed rate is desired to be 0, the computing device 244 maydetermine the notional value associated with the first remnant swapusing the first fixed rate and the sum 327 of weighted notionals, suchthat a coupon payments of the first remnant swap may be equal to the sumof the fixed cash flows associated with the plurality of swaps.

In some cases, determining the second remnant swap may comprisedetermining a second swap having a notional value set to the differencebetween the sum of notional values of the plurality of swaps 310 and thenotional value 342 of the first remnant swap. In some cases, the secondremnant swap may be determined using the second fixed rate, where thesecond fixed rate is greater than or equal to zero and less than thefirst fixed rate of the first remnant swap.

The computing device 244 may be configured to obtain the plurality ofswaps from a data repository of a financial institution, eitherautomatically or in response to a compression request. In some cases,the plurality of swaps may be compressed to reduce a number of lineitems, reduce a gross notional amount associated with the plurality ofswaps, or both. For example, thresholds may be established to definewhen a portfolio may be compressed, such as a line item threshold (e.g.,a maximum number of swaps to be held in a portfolio before compression;the number of line items after compression is less than the number ofline items before compression; etc.) and/or a gross notional threshold(e.g. a maximum gross notional amount to be associated with theportfolio before compression; the gross notional amount aftercompression is smaller than the gross notional before compression,etc.). In an illustrative example, the computing device 244 may processinstructions to determine when to compress a portfolio. For example, thecomputing device 244 may compare a count of the plurality of swapsincluded in a portfolio to a criterion, where the criterion may be thatthe number of line items after compression is smaller than the lineitems before compression. Responsive to the count meeting the criterion,the computer device 244 may blend at least a portion of the plurality ofswaps using the first remnant swap and the second remnant swap, wherethe first remnant swap uses a first fixed rate and the second remnantswap uses a second fixed coupon rate less than the first fixed couponrate. In some cases, the computing device 244 may compute a singlecompression swap, where the plurality of swaps is compressed into thesingle compression swap.

In some cases, the method 400 may include determining a total notionalamount associated with a plurality of swaps having same economics,comparing the total notional amount to a criterion, and, responsive tothe total notional amount meeting the criterion, blending at least aportion of the plurality of swaps 310 using the first remnant swap andthe second remnant swap. In some cases, the criterion may correspond toa threshold associated with the gross notional of the plurality ofswaps. For example, the computing device 244 may compare the grossnotional amount to the criterion (e.g., a maximum gross notional amount;the gross notional amount after compression is smaller than the grossnotional before compression, etc.). If the gross notional of theportfolio meets the criterion, then the computing device 244 maycompress the portfolio. In some cases, in response to the criterionbeing met, the computing device 244 may send a notification thatcompression may be desirable. In some cases, two or more individualswaps included in the plurality of swaps may be selected by a user forcompression.

In some cases, the computing device 244 may blend at least a portion ofthe plurality of swaps 310 using the first remnant swap and the secondremnant swap on a daily basis and communicate, via the network 205,information about the first remnant swap and the second remnant swap toa financial institution associated with the plurality of swaps 310. Thecomputing device 244 may further communicate, via the network 205,information about at least the blended portion of the plurality of theswaps to the financial institution, wherein at least the informationabout the first remnant swap and the second remnant swap may be used tomeet a regulatory requirement, such as a BASEL 3 requirement.

Definitions

N_(i): The notional of the ith swap in an original portfolio.

r_(i): The coupon of the ith swap in the original portfolio.

r^(Max): The max coupon of swaps in the original portfolio.

N^((a)): The notional of the first calculated swap for matching fixedcash flows associated with the original portfolio.

N^((b)): The notional of the second calculated swap for matching fixedcash flows associated with the original portfolio.

R^((a)): The coupon of the first calculated swap for matching fixed cashflows associated with the original portfolio.

R^((b)): The coupon of the second calculated swap for matching fixedcash flows associated with the original portfolio.

R^(L): The lower boundary for the range of swap coupons.

R^(U): The upper boundary for the range of swap coupons.

Cash Flow Matching Conditions

When compressing a plurality of swaps included in a portfolio, the cashflow associated with the one or more swaps calculated during thecompression process should match the total cash flow of the originalportfolio. For example, to ensure that the floating cash flows match,the sum of the notionals associated with the first calculated swap andthe second calculated swap may be set equal to the sum of the notionalvalues of the plurality of swaps to be compressed.

N ^((a)) +N ^((b)) =ΣN _(i)

A  (1)

Similarly, to ensure that the fixed cash flows match, the sum of theweighted notionals associated with the first calculated swap and thesecond calculated swap may be set equal to the sum of the weightednotional values of the plurality of swaps to be compressed.

N ^((a)) R ^((a)) +N ^((b)) R ^((b))=Σ(N _(i) r _(i))

B  (2)

Combining equations (1) and (2), we have

$\begin{matrix}{N^{(a)} = \frac{B - {AR}^{(b)}}{R^{(a)} - R^{(b)}}} & (3)\end{matrix}$

Because N^((a)) (R^((a))) and N^((b))(R^((b))) are symmetric, we letR^((a))>R^((b)) without loss of generality. Further, to preventunreasonably large rates for the first and second calculated swaps,certain constraints are set, such as R^(L)≤R^((a)),R^((b))≤R^(U). Insome cases, R^(U) may be set to a maximum coupon of the originalportfolio (r^(Max)). In other cases, R^(U) may be set to a differentdefined maximum value, a weighted average of coupons values, a userdefined value, or the like. Similarly, R^(L) may be set to zero, adefined fixed minimum coupon value, a weighted average coupon value, auser defined value, or the like. In an illustrative example, the ratesfor the calculated swaps may be defined as R^((a))=r^(Max). andR^((b))=0 In another illustrative example R^((a)) may be set to R^(U)and R^((b)) may be set to a value less than R^(U), such as R^(L). Indoing so, the first calculated swap and the second calculated swap maybe determined using an objective function for minimizing the grossnotional associated with the portfolio of swaps.

abs(N ^((a)))+abs(N ^((b)))=abs(N ^((a)))+abs(A−N ^((a)))  (4)

If A is positive,

$\begin{matrix}{{{{abs}\left( N^{(a)} \right)} + {{abs}\left( {A - N^{(a)}} \right)}} = \left\{ \begin{matrix}{N^{(a)} < {{0:A} - {2N^{(a)}}}} \\{0 \leq N^{(a)} < {A:A}} \\{N^{(a)} \geq {{A:2N^{(a)}} - A}}\end{matrix} \right.} & (5)\end{matrix}$

Here, as the notional of the first swap, N^((a)), approaches theinterval [0, A], the gross notional will be reduced.

Similarly, if A is negative,

$\begin{matrix}{{{{abs}\left( N^{(a)} \right)} + {{abs}\left( {A - N^{(a)}} \right)}} = \left\{ \begin{matrix}{N^{(a)} < A < {{0:A} - {2N^{(a)}}}} \\{A \leq N^{(a)} < {{0:} - A}} \\{N^{(a)} \geq {{0:2N^{(a)}} - A}}\end{matrix} \right.} & (6)\end{matrix}$

As before, as N^((a)) approaches the interval [A, 0], the gross notionalwill be reduced. Therefore, to minimize cash flows, it is desirable tominimize the absolute value of N^((a)), where

$N^{(a)} = {\frac{B - {AR}^{(b)}}{R^{(a)} - R^{(b)}}.}$

This may be achieved by setting R^((a)) to be as large a value asdesired, such as by setting R^((a))=R^(U) (e.g., r^(Max)), and bysetting R^((b)) to be as small a value as feasible, such asR^((b))=R^(L) (e.g., 0). A detailed proof can be found below. However,other rates may be used as well. In other cases, R^((a)) may be set to avalue other than r^(Max), and R^((b)) may be a value greater than 0, butless than R^((a)). For example, R^((a)) may be set to a multiple ofr^(Max), or other value larger or smaller than r^(Max), or some otheruser defined value. Similarly R^((b)) may be set to r^(Min), or othervalue less than R^((a)).

Once the rates have been determined, the notional amounts N(a) and N(b)may be calculated, such as by using the equation:

$\begin{matrix}{{N^{(a)} = \frac{B - {AR}^{(b)}}{R^{(a)} - R^{(b)}}},{{{and}N^{(b)}} = {{\sum N_{i}} - {N^{(a)}.}}}} & (7)\end{matrix}$

By defining the first calculated swap to have a notional N(a) and afixed rate of R(a) and the second calculated swap to have a notional ofN(b) and a fixed rate of R(b), the gross notional associated with thesetwo swaps could be reduced from the gross notional amount associatedwith the original portfolio of swaps. Further, the fixed and thefloating cash flows of the calculated swaps match the fixed and floatingcash flows of the original portfolio.Proof of R^((a))=R^(U) and R^((b))=R^(L)

Recall that

$N^{(a)} = {\frac{B - {AR}^{(b)}}{R^{(a)} - R^{(b)}} = {\frac{B - {AR}^{(a)}}{R^{(a)} - R^{(b)}} + A}}$

and that R^((a))>R^((b)), which also means that R^((a))−R^((b))>0.Further, the constraints are defined as: R^(L)≤R^((a)),R^((b))≤R^(U).Because we want to minimize the absolute value of N^((a)), |N^((a))|,R^((a)) is desired to be as large as possible, or in other words,R^((a))=R^(U).

To show why R^((b))=R^(L) is desirable, consider a case when B>0 andA>0. In this case, when B−AR^(U)>0, this indicates that for anyR∈[R^(L), R^(U)], B−AR>0. As such, in this case where N^((a))>0, andN^((a)) is to be minimized by minimizing R^((b)), such as by settingR^((b))=R^(L). For example, when R^((b)) decreases, R^((a))−R^((b))increases. This, in turn, causes

$N^{(a)} = {\frac{B - {AR}^{(a)}}{R^{(a)} - R^{(b)}} + A}$

to decrease.

When B−AR^(U)<0, we desire to minimize |N^((a))|. When R^((a))=R^(U),and

$N^{(a)} = {{\frac{B - {AR}^{(a)}}{R^{(a)} - R^{(b)}} + A} < {A.}}$

The value of N^((a)) is desired to be maximized or, in other words, tobe a value close to A. Therefore, we want R^((b))=R^(L). For example,when R^((b)) decreases, R^((a))-R^((b)) increases and

$N^{(a)} = {\frac{B - {AR}^{(a)}}{R^{(a)} - R^{(b)}} + A}$

increases. Note that in this case, as shown in FIG. 5A, when A>0, anyN^((a)) that falls within interval [0, A] will minimize the objectivefunction. Here, we choose R^((b))=R^(L) such that N^((a)) is as largeand as close to A as possible, which will minimize the objectivefunction.

When B>0, A<0, for any R∈[R^(L),R^(U)], B−AR>0, and thus N^((a))>0. Assuch, we want to minimize N^((a)). Similar to discussion above, we reachconclusion that R^((a))=R^(U) and R^((b))=R^(L).

When B<0, A>0, this means that for any R∈[R^(L),R^(U)], B−AR<0, thusN^((a))<0, and we want maximize N^((a)). Similar to discussion above, wereach conclusion that R^((a))=R^(U) and R^((b))=R^(L).

When B<0, A<0, the following cases exists. When B−AR^(U)<0, thisindicates that for any R∈[R^(L),R^(U)], B−AR<0. In this case, N^((a))<0,and we want maximize N^((a)). Similar to discussion above, we reach theconclusion that R^((a))=R^(U) and R^((b))=R^(L).

When B−AR^(U)>0, we want to minimize |N^((a))|. When R^((a))=R^(U),

$N^{(a)} = {{\frac{B - {AR}^{(a)}}{R^{(a)} - R^{(b)}} + A} > {A.}}$

Therefore, we want to minimize N^((a)) to be close to A. This isachieved by setting R^((b))=R^(L). For example, when R^((b)) decreases,R^((a))−R^((b)) increases, and

$N^{(a)} = {\frac{B - {AR}^{(a)}}{R^{(a)} - R^{(b)}} + A}$

decreases. In this case, as shown in FIG. 5B when A<0, any N^((a)) thatfalls within interval [A, 0] will minimize the objective function. Insome cases, we may choose R^((b))=R^(L) such that N^((a)) is as smalland as close to A as possible. In doing so, the objective function isminimized.

FIG. 6A illustrates that over a range of R^((b)) near 0, the notional ofthe first trade N^((a)) remains near a minimum value. Similarly, FIG. 6Billustrates that over a range of rates R^((b)) near zero, the grossnotional of the compressed swaps remain near a minimum value. As such,by choosing a value of R^((b)) different than 0, the gross notional ofthe compressed swaps may still remain within a range close to a minimumvalue. In some cases, a portfolio owner may desire to compress aportfolio of multiple swaps into a single swap to represent the originalportfolio. This may be accomplished in a number of ways. In a firstillustrative example, the notional and coupon for the single blendedswap may be defined as N* and R*, respectively. To ensure that the fixedcash flow and the floating cash flow match the corresponding cash flowsof the original portfolio, the notional, N*, and coupon, R*, may bedetermined using:

$\begin{matrix}{N^{*} = {{\sum N_{i}} = A}} & (8)\end{matrix}$ and, $\begin{matrix}{R^{*} = {\frac{\sum\left( {N_{i}r_{i}} \right)}{N^{*}} = \frac{B}{A}}} & (9)\end{matrix}$

To match the cash flow of the compressed swap to the cash flow of theoriginal portfolio, the precision of the rate R* may be determined insuch a way that the cash flows match. In some cases, the rate R* may berounded to a precision similar to a precision available in a financialmarket (e.g., up to 5 decimal places, up to 7 decimal places, etc.). Insome cases, the precision of the rate R* may necessarily be greater thanis available in a market, to ensure that the cash flows match. Forexample, when matching the cash flows, a greater precision may berequired (e.g., at least 7 decimal places). Rounding of the rate may ormay not be required and may be specified by an institution associatedwith the original portfolio.

Because the notional value of each swap included in the originalportfolio may be positive or negative. As such, some caveats may existfor this approach when both payer and receiver swaps are included in theoriginal portfolio to be compressed. For example, when the net notionalof the original portfolio is zero (e.g., A=0), the calculation cannot beperformed. In another case, when the net notional of the originalportfolio is close to zero, the coupon value of the compressed swap maybecome large. In some cases, this large coupon value may not bedesirable.

In some cases, instead of using

${R^{*} = {\frac{\sum\left( {N_{i}r_{i}} \right)}{N^{*}} = \frac{B}{A}}},$

the rate of the blended swap may be set to some coupon number R close toR*. In such cases, additional frequent payments may be added to accountthe cash flow difference due to the difference between R and R*. In thiscase, the swap notional would still be net notional, i.e. N*=ΣN_(i)=A.This scheme may result in a more complex cash flow management scheme.

Using a two swaps approach, we have R^((a))=R^(U) and R^((b))=R^(L). IfR^(L) is set to be 0, the second swap will become a swap with zerocoupon. In such cases, these two swaps may be combined into a singleswap having different notional on the fixed leg and the floating leg. Inother words, the fixed leg notional may be N^(fix)=N^((a)), and thefloating leg notional may be N^(fl)=N^((a))+N^((b)). While this combinedswap may avoid any shortcomings of the previously discussed swaps, thisswap may be considered a non-standard swap. In some cases, a portfolioowner may approve a non-standard swap, such as this on a case by casebasis.

In some cases, to blend the coupons associated with the swaps of aparticular portfolio, a single blended swap may be constructed havingthe same financials as the sum of the swaps in the portfolio. Forexample, a swap may be constructed having a notional equal to the sum ofthe notionals of the swaps. In this case, the rate of the single blendedswap may be found by dividing the sum of the weighted notionals by thesum of the notionals of the swaps to be compressed.

FIG. 7 shows an illustrative flow diagram 700 for blending couponsassociated with a plurality of swaps in accordance with an aspect theinvention. For example, at step 710, a computing device (e.g., thecomputing device 244, the clearinghouse module 140, etc.) may determinea fixed rate for use in blending a plurality of swaps (e.g., the swaps310), where each of the plurality of swaps 310 has matching economicsand a different associated fixed rate. In some cases, the swaps includeboth pay swaps and receive swaps. At step 720, the computing device 244may determine a blended swap for blending the plurality of swaps 310using the fixed rate. At 730, the computing device may determine adifference between the cash flows of the plurality of swaps and cashflows associated with the blended swap. For example, in some cases, aselected precision (e.g., 2 decimal places, 5 decimal places, up to 7decimal places, etc.) of the fixed rate may not allow the cash flows tobe completely matched. The cash flow difference is then compared to athreshold at 745. In some cases, the threshold may be a value associatedwith an acceptable difference in cash flows and the single blended swapmay be created at 770. For example, the threshold may be a value lessthan a specified amount (e.g., about 100 dollars, about 1 dollar, about1 cent, etc.). If the difference is more than the threshold, then at760, an adjustment may be made to the blended swap that is created at720. However, if the difference is less than a threshold, nocompensation may be performed.

In some cases, a compensation amount (e.g., a cash amount) may beassociated with the blended swap, where the compensation amountcorresponds to the difference between the cash flows of the originalportfolio and the cash flow of the blended swap. In another example, theprecision of the fixed rate may be extended (e.g., increased from 5decimal places to 6 or more decimal places) until the difference hasbeen reduced below the threshold. In another cases, compensation mayinclude adding a precise spread over the single swap trade. In somecases, different notional amounts may be applied to each leg of thesingle swap such that the difference is reduced below the threshold. Inanother example, a two swap solution may be substituted for the singleswap solution.

The present invention has been described herein with reference tospecific exemplary embodiments thereof. It will be apparent to thoseskilled in the art that a person understanding this invention mayconceive of changes or other embodiments or variations, which utilizethe principles of this invention without departing from the broaderspirit and scope of the invention as set forth in the appended claims.

We claim:
 1. A computer-implemented method comprising: monitoring,automatically by a processor, data, stored in a non-transitory memory,indicative of at least two interest rate instruments, each characterizedby a rate associated therewith, and collectively characterized by aneconomic characteristic; determining, by the processor, a first rate foruse in eliminating the at least two interest rate instruments, the firstrate being determined therefrom, and based thereon, generating dataindicative of a first calculated interest rate instrument and computingthe economic characteristics thereof; generating, by the processor whenthe economics of the first calculated interest rate instrument are notequal to the economic characteristics of the at least two interest rateinstruments, data indicative of a second calculated interest rateinstrument using a second rate, such that the economic characteristicsof the first calculated interest rate instrument alone, or ifdetermined, in combination with the economic characteristics of thesecond calculated interest rate instrument, are identical to the to theeconomic characteristic of the at least two interest rate instruments;and replacing, by the processor in the non-transitory memory, the dataindicative of the at least two interest rate instruments with the dataindicative of the first calculated interest rate instrument and, ifdetermined, the data indicative of the second calculated interest rateinstrument, wherein the amount of data stored in the memory is reduced.2. The computer-implemented method of claim 1, wherein the each of theat least two interest rate instruments comprises an interest rate swap.3. The computer-implemented method of claim 1, wherein the processor islocated remotely from the non-transitory memory and coupled therewithvia an electronic communications network.
 4. The computer-implementedmethod of claim 1, wherein the determining, generating and replacing arefurther triggered by a request received from a user.
 5. Thecomputer-implemented method of claim 1, wherein the determining,generating and replacing are further triggered when it is determinedthat replacement of the at least two interest rate instruments willresult in a reduction in a number thereof.
 6. The computer-implementedmethod of claim 1, wherein determining the first rate comprises:determining a maximum of rates associated with the swaps of the subset.7. The computer-implemented method of claim 1, comprising: prior todetermining the first rate, determining a subset of the at least twointerest rate instruments all having the same associated rate andnetting each thereof together wherein any unnetted remainder is formedinto data indicative of a third calculated interest rate instrument, andreplacing, in the non-transitory memory, the data indicative of thesubset with the data indicative of the third calculated interest rateinstrument.
 8. The computer-implemented method of claim 1, whereindetermining at least the first rate comprises: determining at least oneof the first rate and, if determined, the second rate based on a currentmarket rate for a quoted interest rate instrument having matchingeconomics to the at least two interest rate instruments.
 9. Thecomputer-implemented method of claim 1, wherein determining the firstrate comprises receiving a user-entered rate value for at least one ofthe first rate and, if determined, the second rate.
 10. Thecomputer-implemented method of claim 1, wherein the monitoring furthercomprises comparing a count of the number of interest rate instrumentsindicated by the data stored in the non-transitory memory to a criterionand determining the subset thereof to be replaced based thereon.
 11. Thecomputer-implemented method of claim 1, comparing the total notionalamount of the at least two interest rate instruments indicated by thedata stored in the non-transitory memory to a criterion and determiningthe subset thereof to be replaced based thereon.
 12. Thecomputer-implemented method of claim 1, wherein the monitoring isperformed periodically.
 13. The computer-implemented method of claim 14,comprising: communicating, via the network, data corresponding to atleast a blended portion of the at least two interest rate instruments tobe used to meet a regulatory requirement.
 14. A system comprising: aprocessor; and a first non-transitory memory device storinginstructions, that when executed by the processor, cause the processorto: monitor, automatically, data, stored in a second non-transitorymemory, indicative of at least two interest rate instruments, eachcharacterized by a rate associated therewith, and collectivelycharacterized by an economic characteristic; determine a first rate foruse in eliminating the at least two interest rate instruments, the firstrate being determined therefrom, and based thereon, generate dataindicative of a first calculated interest rate instrument and computingthe economic characteristics thereof; generate, when the economics ofthe first calculated interest rate instrument are not equal to theeconomic characteristics of the at least two interest rate instruments,data indicative of a second calculated interest rate instrument using asecond rate, such that the economic characteristics of the firstcalculated interest rate instrument alone, or if determined, incombination with the economic characteristics of the second calculatedinterest rate instrument, are identical to the to the economiccharacteristic of the at least two interest rate instruments; andreplace, in the second non-transitory memory, the data indicative of theat least two interest rate instruments with the data indicative of thefirst calculated interest rate instrument and, if determined, the dataindicative of the second calculated interest rate instrument, whereinthe amount of data stored in the memory is reduced.
 15. The system ofclaim 14, wherein the first non-transitory memory device storesinstructions that, when executed by a processor, cause the processor to:compare at least one metric associated with the monitored data to aspecified criterion, wherein the metric comprises a total number ofinterest rate instruments having same economics or a total notionalamount associated with the at least two interest rate instruments havingsame economics; and responsive to the total notional amount meeting thecriterion, replace the at least two interest rate instruments using thefirst calculated interest rate instrument and the second calculatedinterest rate instrument, the at least two interest rate instrumentsincluding one or more payer swaps and one or more receiver swaps. 16.The system of claim 14, wherein the each of the at least two interestrate instruments comprises an interest rate swap.
 17. The system ofclaim 14, wherein the processor is located remotely from the secondnon-transitory memory and coupled therewith via an electroniccommunications network.
 18. The system of claim 14, wherein thedetermination, generation and replacement are further triggered by arequest received from a user.
 19. The system of claim 14, wherein thedetermination, generation and replacement are further triggered when itis determined that replacement of the at least two interest rateinstruments will result in a reduction in a number thereof.
 20. Thesystem of claim 14 wherein first non-transitory memory device storesinstructions that, when executed by the processor, cause the processorto, prior to determining the first rate, determine a subset of the atleast two interest rate instruments all having the same associated rateand netting each thereof together wherein any unnetted remainder isformed into data indicative of a third calculated interest rateinstrument, and replace, in the non-transitory memory, the dataindicative of the subset with the data indicative of the thirdcalculated interest rate instrument.
 21. A system comprising: means formonitoring, automatically, data, stored in a non-transitory memory,indicative of at least two interest rate instruments, each characterizedby a rate associated therewith, and collectively characterized by aneconomic characteristic; means for determining a first rate for use ineliminating the at least two interest rate instruments, the first ratebeing determined therefrom, and based thereon, generating dataindicative of a first calculated interest rate instrument and computingthe economic characteristics thereof; means for generating, when theeconomics of the first calculated interest rate instrument are not equalto the economic characteristics of the at least two interest rateinstruments, data indicative of a second calculated interest rateinstrument using a second rate, such that the economic characteristicsof the first calculated interest rate instrument alone, or ifdetermined, in combination with the economic characteristics of thesecond calculated interest rate instrument, are identical to the to theeconomic characteristic of the at least two interest rate instruments;and means for replacing, in the non-transitory memory, the dataindicative of the at least two interest rate instruments with the dataindicative of the first calculated interest rate instrument and, ifdetermined, the data indicative of the second calculated interest rateinstrument, wherein the amount of data stored in the memory is reduced.